ORDER
P.S. Narayana, J.
1. This C.R.P. was admitted on 19-1-2007 and in C.R.P.M.P. No. 180/2007 while granting interim stay, notice had been ordered.
2. Judgment-debtors 4, 6 and 7 in E.P. No. 364/2005 in O.S. No. 823/2002 on the file of Principal Junior Civil Judge, Machilipatnam are the Revision Petitioners. The said Judgment-debtors as petitioners filed E.A. No. 1857/2005 in E.P. No. 364/2005 in O.S. No. 823/2002 aforesaid under Sections 47 and 151 of the Code of civil Procedure (hereinafter in short referred to as 'the Code' for the purpose of convenience) praying for an order that the Decree cannot be executed against the said petitioners-Judgment- debtors and the 5th Judgment-debtor as well. The 5th Judgment- debtor is the 5th respondent in the said E.A. and also 5th respondent in the present C.R.P. The learned Principal Junior Civil Judge, Machilipatnam after hearing the parties and after recording the respective stands taken by the parties, referred to the different provisions of the Indian Contract Act, relied on several decisions, and ultimately came to the conclusion that when a Decree had been made, no distinction can be drawn in between the Principal Debtor and the Sureties and all the Judgment-debtors are jointly and severally liable to pay the decretal amount and accordingly, dismissed the said application without costs. Aggrieved by the same, the present C.R.P. had been preferred.
3. Sri O. Manohar Reddy, the learned Counsel representing the Revision Petitioners had placed before this Court the Decree made by the Court and also the wording employed in the Decree and would maintain that in the light of the Decree, the suit dismissed as against D.1 to D.3, this Decree cannot be put into execution at all as against the other parties - the Revision Petitioners and the 5th respondent who were just. The guarantors or the sureties, this would go to the very root of the matter and hence, inasmuch as the very executability of the Decree is in question or controversy, such objection can definitely be taken by way of an application on execution side under Section 47 read with Section 151 of the Code. The learned Counsel also placed before this Court not only the Decree made in O.S. No. 823/2002 but also placed a copy of the Judgment in O.S. No. 823/2002 on the file of Principal Junior Civil Judge, Machilipatnam and pointed out to the relevant portions of the findings recorded in this regard. The learned Counsel also would maintain that may be that these parties could have challenged that portion of the Decree by filing an appropriate appeal but however the mere fact that they had not chosen to invoke that remedy, may not operate as a bar, in the light of the inherent defect or the serious legal infirmity involved in the case. The learned Counsel also in detail had taken this Court through the different provisions of the Indian Contract Act and further placed reliance on certain decisions to substantiate his submissions. The Counsel also would maintain that the liability of the surety to pay the amount would arise only if there is a Decree against the principal debtor and not otherwise. The learned Counsel laid emphasis on the fact that when no Decree was made as against the legal heirs of the principal debtor, automatically it may have to be taken that the sureties also had been discharged from the liability and in this view of the matter, the Decree cannot be further executed. The Counsel also in detail had taken this Court through the relevant portions of the order, the relevant portion of the Decree made in the suit and also the relevant findings recorded in O.S. No. 823/2002 as well.
4. Per contra, Sri K. Maheshwara Rao, the learned Counsel representing the respondent-Decree Holder-plaintiff also had taken this Court through the relevant findings recorded in O.S.No.823/2002 and would maintain that the only reason on which the suit was dismissed as against the legal heirs of the principal debtor - D.1 to D.3 was that no assets of the deceased principal debtor had been left with in the hands of those parties and nothing beyond thereto and that cannot be taken advantage of by the other parties on the ground that they are just guarantors or sureties and further those parties cannot be permitted to contend that it is to be taken that they are also discharged from the liability on the ground that their liability is only coextensive with that of the principal debtor. The said parties - the Revision Petitioners cannot be permitted to raise that ground in the light of the findings recorded by the learned Principal Junior Civil Judge, Machilipatnam. The said findings had attained finality since those findings recorded in the suit had not been challenged by way of appeal and at the stage of execution, the self-same ground, by way of objections, cannot be taken by invoking Section 47 read with Section 151 of the Code. The learned Counsel also made certain submissions relating to the nature of Chit Fund transaction and also how the public suffers even in a case of this nature. Incidentally, the learned Counsel explained the duties of the Foreman and would maintain that in the facts and circumstances of the case and also in the light of the convincing reasons recorded by the learned Principal Junior Civil Judge, Machilipatnam, the Civil Revision Petition to be dismissed. The Counsel also placed strong reliance on several decisions to substantiate his submissions.
5. Heard the Counsel. Perused the records.
6. The short question which may have to be decided in the present Civil Revision Petition is as hereunder:
Whether the dismissal of the application filed by the Revision Petitioners under Section 47 read with Section 151 of the Code to the effect that the Decree cannot be executed as against the petitioners and also the 5th respondent - Judgment-debtor can be said to be in accordance with law or whether the order impugned in the Civil Revision Petition suffers from any serious legal infirmity warranting interference in the present Civil Revision Petition?
7. The Revision Petitioners filed the application E.A. No. 1857/2005 aforesaid under Section 47 read with Section 151 of the Code taking an objection to the executability of the Decree as against the Revision Petitioners and the 5th respondent - Judgment-debtor. It is needless to say that the Decree Holder- plaintiff is the 1st respondent. Defendants 1 to 3 in the said suit are shown as respondents 2 to 4. The Decree Holder filed the suit O.S. No. 823/2002 aforesaid against the Revision Petitioners and also respondents 2 to 5 for recovery of amount on the strength of a chit transaction. One Bandi Venugopal Rao, the husband of the 2nd respondent and father of respondents 3 and 4, who is no more, was a member of the Chit. Petitioners 1 to 3 and respondent No. 5 stood as guarantors to the said chit transaction. The said suit was dismissed as against respondents 2 to 4 but the suit was decreed as against the Revision Petitioners-petitioners and the 5th respondent on 29-7-2004. The petitioners filed the application aforesaid under Section 47 read with Section 151 of the Code raising an objection that respondents 2 to 4 who were shown as defendants 1 to 3 in the suit, being the legal heirs of the principal borrower, and these parties - the Revision Petitioners/petitioners and also the 5th respondent being only guarantors and inasmuch as the suit was dismissed as against D.1 to D.3, they being just guarantors cannot be made liable and the Decree cannot be put into execution as against them and hence, such objections raised before the Executing Court to be upheld. The 1st respondent -Decree Holder resisted the same taking specific stand that the liability of the petitioners and the 5th respondent being coextensive with that of the principal borrowers i.e., the legal representatives of the original principal borrower who is no more, respondents 2 to 4, and in the light of the findings recorded in the Judgment made in the suit clearly specifying that the liability of the guarantors is joint and several. It cannot be said that the liability of the guarantors would come to an end on the death of the principal borrower or by virtue of the dismissal of the suit as against the legal representatives, the petitioners cannot be permitted to question the executability of the said Decree by way of an execution application under Section 47 read with 151 of the Code. Further specific stand had been taken that the learned Principal Junior Civil Judge, Machilipatnam dismissed the said suit against respondents 2 to 4 - defendants 1 to 3 only on the simple ground that no asset of the deceased Venugopala Rao devolved upon them and nothing beyond thereto and hence in the light of the same, the application to be dismissed with costs. The learned Principal Junior Civil Judge, Machilipatnam formulated the following point for consideration at para 7 'whether this application is liable to be allowed or not?', recorded reasons in detail commencing from paras 8 to 14 and ultimately dismissed the application without costs. It is pertinent to note that the Judgment and Decree made in O.S. No. 823/2002 on the file of Principal Junior Civil Judge, Machilipatnam, attained finality and the same had not been challenged by way of appeal or otherwise. The 1st respondent in the C.R.P. - M/s. Sri Ram Chits Ltd., instituted the said suit O.S. No. 823/2002 aforesaid for recovery of Rs. 68,978/-, being the balance of principal and interest due by the defendants towards chit agreement dt.24-10-2000 with subsequent interest and costs. Several averments made in the plaint and also in the written statements of the defendants and the issues settled need not be discussed in elaboration. It is suffice to state that on behalf of 1st respondent - plaintiff P.W.1 was examined, Ex.A.1 to Ex.A.21 were marked and on behalf of defendants D.W.1 was examined. While answering issue No. 4 the under-noted findings had been recorded:
It is the evidence of P.W.1 that the deceased Bandi Venugopala Rao committed default in payment of future instalments from 19th instalment onwards for which the plaintiff-company gave legal notices under original of Ex.A. 5 which was duly acknowledged under Ex.A.6 to Ex.A.9 postal acknowledgements, as well as the returned registered notices under Ex.A. 10 and Ex.A. 11. He further stated that they have also issued original of Ex.A. 12 - notice to the defendants under legal notice Under Section 25(1) of A.P. Chit Funds Act and also relied upon Ex. A. 13 postal receipts and Ex. A. 14 to Ex. A. 19 acknowledgements and Ex.A.20 returned registered notice from D.4. He further stated that D.1 to D.3 gave reply notice under Ex.A.21.
In view of Ex.A.2 guarantee bond, it can be easily-said that the liability of the defendants 4 to 7 joint and several with that of the deceased Bandi Venu Gopala Rao in payment of the future instalments to the plaintiff/company. So far as D.1 to D.3 are concerned, D.W.I stated that no estate of the deceased devolved upon them and they are not in a position to pay a single pie to the plaintiff/company. Nothing is elicited from the evidence of D.W.1 that the deceased Bandi Venugopala Rao left the properties in the hands of D.1 to D.3. No documentary proof is placed before the Court to show that the properties of the deceased Bandi Venugopala Rao devolved upon D.1 to D.3. P.W.1 stated in the cross-examination that he do not know whether any property was devolved on the defendants 1 to 3 out of the estate of the deceased subscriber. He stated that D.1 to D.3 gave reply notice under Ex.A.21 by stating that no properties devolved upon them from the deceased subscriber.
In view of the above circumstances, it cannot be said that the estate of late Bandi Venugopala Rao is in the hands of D.1 to D.3 for which the plaintiff is entitled for a decree against D.1 to D.3 to pay the suit amount from out of the estate of the deceased subscriber Bandi Venugopala Rao. As such, I feel that the plaintiff is entitled for the suit amount from the defendants 4 to 7 only. This issue is decided accordingly.
While answering issue No. 6, the learned Principal Junior Civil Judge, Machilipatnam recorded as hereunder:
In view of my findings in issues 1 to 5, I have no hestitation to say that the plaintiff/company is entitled for the suit claim against D.4 to D.7. So far as D.1 to D.3 are concerned, as no estate was devolved on them, no relief can be passed against the estate of the deceased in the hands of D.1 to D.3.
In the result, the suit is partly decreed against D.4 to D.7 with costs with consequent interest at 12% p.a. on the principal amount from the date of suit till the date of realization. The suit is dismissed against D.1 to D.3.
8. The Decree made is as hereunder:
(i) that the defendants 4 to 7 do pay the plaintiff a sum of Rs. 68,978-00 with future interest at 12% per annum on the principal amount i.e., Rs. 64,000/- from the date of the suit till the date of realization.
(ii) that the defendants 4 to 7 do also pay to the plaintiff a sum of Rs. 6,882/- towards costs of the suit.
(iii) And, that the suit against D.1 to D.3 be and the same is hereby dismissed.
9. Sri O. Manohar Reddy placed strong reliance on the decision
of this Court in Syndicate Bank v. Pamidi Somaiah : 2001(6)ALD365 wherein the learned Judge of this Court while dealing with Sections 126, 128, 134, 139 and 140 of the Indian Contract Act 1872 observed at paras 9, 11, 15 and 16 as hereunder:
A perusal of the above provisions clearly shows that the person, who gives guarantee to discharge the liability of a third person in case of his default, is called 'surety' and the person in respect of whose default the guarantee is given is called the 'principal debtor'. The liability of the surety is co-extensive with that of the principal debtor. Section 134 shows that the surety's liability stands discharged by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. Section 139 also contemplates the discharge of surety by the creditor's act or omission impairing surety's eventual remedy. As per Section 140, where a guaranteed debt has become due, or on default of the principal debtor, the surety, upon payment, is invested with all the rights, which the creditor had against the principal debtor. In the above provisions, it is clear that the rights and obligations on both the creditor and the surety are provided. In the present case it is a fact that though the creditor filed the suit both against the principal debtor and the surety, the principal debtor died during the pendency of the suit and because of the omission on the part of the creditor the suit stands abated against the principal debtor. The effect of it is the creditor cannot proceed against the principal debtor or his legal heirs and the debt stands discharged because of the omission to act on the part of the creditor. Now it is to be examined 'whether by the said omission on the part of the creditor, which had resulted in the abatement of the suit against the principal debtor and consequential discharge against the principal debtor would result in discharge of the surety or not'. As already noticed, the surety is only a guarantor for the due to be discharged by the principal debtor and in case of default committed by the principal debtor, the surety has to make good the loss to the creditor. It is also not in dispute that the creditor has the right to proceed against the surety also, even though he can proceed against the principal debtor. If the creditor has recovered the amount due by the principal debtor from the surety, the surety stands subrogated into the shoe of the creditor and he can proceed and recover the amount paid as a surety from the principal debtor. By virtue of the act of omission by the creditor, the surety had lost such a right. The surety is only a guarantor and in case he pays the amount guaranteed by him on behalf of the principal debtor, he must have the right to proceed against the principal debtor. In the present case, as a result of an act of omission on the part of the creditor, the liability of the principal debtor stands discharged, as the creditor's suit against him had abated. Therefore, in terms of Section 134, it should be inferred that the liability against the surety also stands discharged, as a result of the abatement of the suit against the principal debtor.
Though in all the above decisions, it was held that the liability of the surety is co-extensive with that of the principal debtor and the creditor decree holder need not proceed against the principal debtor before proceeding against the surety, either by way of suit, or for the recovery of the decretal amount, but in none of the above decisions, the present position exist, where a suit against the principal debtor had abated by an act of omission on the part of the creditor. As a result of the omission on the part of the creditor in bringing the legal representatives on record, the surety's right that was provided under Section 140 of the Contract Act to proceed against the principal debtor had been lost. Apart from that in terms of Section 134, the surety is discharged by the omission of the creditor in allowing the suit to abate against the principal debtor and consequently in the discharge of the debt against the principal debtor.
In the present case also though the principal debtor did not claim the relief under the Aet 7 of 1977, but due to his death the suit had abated and the debt against him stands discharged. When once the debt stands discharged against the principal debtor, more so, as a result of an omission on the part of the creditor, I do not find that there is any case for the creditor to proceed against the surety. The liability of the surety is always to make good the loss that was caused as a result of the default of the principal debtor and if the surety discharges the liability of the creditor he can have a right to proceed against the principal debtor. In the present case as a result of the omission of the creditor, the surety is denied of such a right. In such a case, it would not be proper to hold that the surety is still liable for the creditor even after the discharge of the principal debtor, as a result of the omission on the part of the creditor.
One of the contentions advanced by the learned Counsel for the petitioner is that the executing Court cannot go beyond the decree. Therefore, the execution petition ought to have been allowed against the surety. I am unable to accept the said contention of the learned Counsel. When once the suit is abated against the principal debtor, it is equally abated/dismissed against the surety also. Therefore, the decree even if it is passed against the surety when the principal debtor has been discharged as a result of the abatement of the suit, such a decree is illegal and unenforceable against the surety also. In that view of the matter, the petitioner is not entitled to proceed against the surety. Even though the trial Court has passed a decree against the surety, such a decree is not executable at all.
Sri K. Maheshwara Rao, the learned Counsel representing 1st respondent - Decree Holder distinguished the said decision on the ground that it was a case where principal debtor died and the legal representatives were not brought on record and the suit abated as against the principal debtor and in that context surety being only guarantor for the discharge of the suit amount as a result of abatement of the suit against the principal debtor, the liability of the surety was held to have been discharged. In the present case, the legal representatives of the principal borrower were shown as defendants 1 to 3 and after recording certain findings, the learned Principal Junior Civil Judge, Machilipatnam, on the ground that no part of the estate of the deceased Venugopala Rao devolved on the legal representatives, thought it fit to dismiss the suit as against those parties, since even in the event of a decree being passed, the same cannot be put into execution and it is futile exercise. In the light of the these facts, now it may have to be seen whether the decree as it stands can be further put into execution as against the rest of the parties - the Revision Petitioners and the 5th respondent. Section 126 of the Indian Contract Act, 1872 dealing with 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor' reads as hereunder:
A 'contract of guarantee' is a contract to perform the promise or discharge the liability, of a third person in case of his default, the person who gives the guarantee is called the 'surety', the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written.
Section 128 of the said Act dealing with Surety's liability reads as hereunder:
The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.
Section 134 of the said Act dealing with discharge of surety by release or discharge of principal debtor reads as hereunder:
The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.
10. The illustrations appended to Section 134 of the said Act also throw further light on this aspect. Sri K. Maheshwara Rao placed strong reliance on the decision of the Division Bench of this Court in M.N.A. Khan v. Com. & Ind. Bank : AIR1969AP294 wherein the Division Bench while dealing with Sections 126 and 127 of the Indian Contract Act, 1872 observed at para 28 as hereunder:
A careful reading of these two provisions would clearly indicate that the primary idea of suretyship is an undertaking to indemnify the debtor in case he does not fulfil his promise, the contract of guarantee being thus a contract to indemnify. The central point in such a case is to determine what was the contingency which the parties had in their minds when the contract of guarantee was entered into. In order to decide that question, it must be remembered that the law does not require a contract of guarantee to be necessarily in writing. It may be either oral or in writing. It may be express or it may even be implied. It might be even inferred from the course of conduct of the parties concerned. It is, however, to be borne in mind that whatever may be the form of the contract, it must be satisfactorily proved and that it must have consideration. Like any other contract, as contract of guarantee must be supported by consideration. It is, however, not necessary that the consideration should flow from the creditor and be received by the surety. Consideration between the creditor and the principal debtor is a valid and good consideration for the guarantee given by the surety. There is considerable conflict of opinion as to whether the past benefit to the principal debtor amounts to a good consideration. In other words whether past consideration can be a good consideration for a contract of guarantee. Nanak Ram v. Mahin Lal (1875) ILR 1 All. 487; Varghese v. I. Abraham AIR 1952 Trav-Co. 202; Ram Narain v. Hari Singh and Prestonji Manekji Mody v. Meherbai AIR 1928 Bom 539 take the view that past consideration or past benefit to the principal debtor cannot be a good consideration for a contract of surety. On the other hand, Ghulam Hussain v. Faiyaz Ali and Chakhan Lal v. Kanhaiya Lal : AIR1929All72 take the view that the past consideration or the past benefit to the principal debtor could be a valid consideration for a bond of guarantee. In this conflict. Kali Charan v. Abdul Rahman AIR 1918 PC 226 is often referred to. While on the one hand it is claimed that the said Privy Council case approves of the former view, it is contended that apparently the security bond in that case, although was executed on a date subsequent to the compromise it was executed in pursuance of one of the terms of the compromise. Therefore it is argued that that was not a case of past consideration.
11. No doubt, Sri O. Manohar Reddy made certain submissions distinguishing the said decision and also the applicability thereof on the ground that this case was concerned with Commercial & Industrial Bank Ltd., and the present matter is concerned with only a Chit Fund Company. In Hukumchand Insurance Co. v. Bank of Baroda AIR 1977 Karnataka 204 relying upon Bank of Bihar Ltd. v. Dr. Damodar Prasad : [1969]1SCR620 the Division Bench of Karnataka High Court at para 12 observed as hereunder:
Point (d): It is no doubt true, as contended for by Sri D. Cheluyaraju, that the plaint seeking as it does, the realisation of the security is in substance akin to a suit for sale on a mortgage. The plaint, however, is not in the form in which such suit ought to be having regard to the provisions of Order 34 CPC. The plaint leaves much to be desired both in the matter of a proper presentation of plaintiffs case as well as in its form. The point that Sri D. Cheluvaraju seeks to make is that even if the liability of his client is held to be co-extensive with that of the principal debtor, the decree that can be made against his client should necessarily be limited to the extent of a personal decree that admits of being made against the principal debtors. According to him, a personal decree against the principal debtors being limited to such part of the mortgage debt, if any, as may remain unsatisfied consequent upon an insufficiency in the proceeds of sale of the security, the decree against the appellant should also be so limited. He relied upon the decision in Subharikhan Ramjankhan v. Lalkhan Haji Umarkhan AIR. 1948 Nag. 123 in support of his contention. In that case, it was held that in a suit on a mortgage, though a surety for the mortgagor, who had contracted to make good the deficit which may be found due on the sale of the security, was a necessary party to the action by virtue of Section 91 of the T.P. Act read with Order 34 Rule 1 CPC, no conditional decree for even the balance could be passed against him, the reason being that as the liability of the surety would arise only if the mortgaged property was found insufficient. This decision while clearly not supporting the case of the appellant, on the contrary, supports the view that in a converse case where the liability of the surety is not sc limited, a decree against the surety is permissible.
The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities, although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously. This proposition finds support in a passage from Halsbury's Laws of England (3rd Edn, Vol. 22 para 819):
819 Proceedings by assured against debtor'. Except where the policy so provides, the creditor is not bound to sue the debtor or to enforce his security first; he is entitled, as soon as there is a default within the meaning of the policy, to claim payment from the insurers. The policy may, however, be limited to cover only the deficiency which remains after the creditor has exhausted his remedies against the debtor or his sureties.
In Bank of Bihar v. Damodar Prasad : [1969]1SCR620 the Apex Court while dealing with Sections 128 and 149 of the Indian Contract Act 1872 and the liability of the surety observed at paras 4, 5 and 6 as hereunder:
Before payment the surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. As Lord Eldon observed in Wright v. Simpson (1802) 6 Ves Jun 714 at p. 734 : 31 ER 1272 at p. 1282: 'but the surety is a guarantee; and - it is his business to see whether the principal pays, and not that of creditor.' In the absence of some special equity the surety has no right to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against the principal in some other proceedings.
Likewise where the creditor has obtained a decree against the surety and the principal, the surety has no right to restrain execution against him until the creditor has exhausted his remedies against the principal. In Lachhman Joharimal v. Bapu Khandu (1869) 6 Bom HCR 241, the judge of the Court of Small Causes, Ahmednagar, solicited the opinion of the Bombay High Court on the subject of the liability of sureties. The creditors having obtained decrees in two suits in the Court of Small Causes against the principals and sureties, presented applications for the imprisonment of the sureties before levying execution against the principals. The judge stated that the practice of his court had been to restrain a judgment-creditor from recovering from a surety until he had exhausted his remedy against the principal but in his view the surety should be liable to imprisonment while the principal was at large. Couch, C.J. and Melvill, J. agreed with this opinion and observed:
The court is of opinion that a creditor is not bound to exhaust his remedy against the principal debtor before suing the surety and that when a decree is obtained against a surety, it may be enforced in the same manner as a decree for any other debt.
It is now suggested that under Order 20, Rule 11(1) and Section 151 of the Code of Civil Procedure the Court passing the decree had the power to impose the condition that the judgment creditor would not be at liberty to enforce the decree against the surety until the creditor has exhausted his remedies against the principal. Order 20, Rule 11(1) provides that 'where and in so far as a decree is for the payment of money, the Court may for any sufficient reason at the time of passing the decree order that payment of the amount decreed shall be postponed or shall be made by instalments, with or without interest, notwithstanding anything contained in the contract under which the money is payable.' For making an order under Order 20, Rule 11(1) the Court must give sufficient reasons. The direction postponing payment of the amount decreed must be clear and specific. The injunction upon the creditor not to proceed against the surety until the creditor has exhausted his remedies against the principal is of the vaguest character. It is not stated how and when the creditor would exhaust his remedies against the principal. Is the creditor to as for imprisonment of the principal? Is he bound to discover at his peril all the properties of the principal and sell them; and if he cannot, does he lose his remedy against the surety? Has he to file an insolvency petition against the principal? The Trial Court gave no reasons for this extra-ordinary direction. The Court rejected the prayer of the principal debtor for payment of the decretal amount in instalments as there was no evidence to show that he could not pay the decretal amount in one lump sum. It is therefore said that the principal was solvent. But the solvency of the principal is not a sufficient ground for restraining execution of the decree against the surety. It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act and he may then recover the amount from the principal. The very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In the present case the creditor is a banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down. The impugned direction cannot be justified under Order 20, Rule 11(1). Assuming that apart from Order 20, Rule 11(1) the Court had the inherent power under Section 151 to direct postponement of execution of the decree, the ends of justice did not require such postponement.
In State Bank of India v. Indexport Registered : AIR1992SC1740 while overruling : AIR1987SC1078 observed that when a compromise money decree was made both personal against all defendants including guarantor as well as mortgage decree without limitation on execution, the Decree Holder cannot be forced to first exhaust remedy by way of execution of mortgage decree alone and then to proceed against guarantor. In M.S.E.B. Bombay v. Official Liquidator, H.C., Ernakulam : [1983]1SCR561 the Apex Court at paras 6 and 7 observed as hereunder:
The principal question which arises for determination in this appeal relates to the effect of the liquidation proceedings on the right of the Electricity Board to recover from the Bank the sum of Rs. 50,000 as per the terms of the bank guarantee. It cannot be disputed that the terms of the document on the basis of which the Electricity Board has claimed the amount from the Bank constitute a contract of guarantee and not a contract of indemnity. Under that document the Bank has undertaken to pay any amount not exceeding Rs. 50,000 to the Electricity Board within forty-eight hours of the demand. The payment of the amount guaranteed by the Bank is not made dependent upon the proof of any default on the part of the Company in liquidation. It may be that in order to give the said guarantee, the Bank had in its turn taken, as security from the Company in liquidation certain fixed deposit receipt and a certain quantity of imported zinc ingots and that the Bank had certain rights in respect of those securities. There may also be some claims or counter-claims arising out of the contracts of supply entered into between the Electricity Board and the Company in liquidation. But the transactions viz. (1) the bank guarantee executed by the Bank in favour of the Electricity Board, (2) the contracts of supply entered into between the Electricity Board and the Company in liquidation and (3) the document under which the Company in liquidation had given a fixed deposit receipt and certain quantity of zinc ingots as security to the Bank for executing the letter of guarantee in favour of the Electricity Board are independent of each other in so far as their legal incidents are concerned.
Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rupees 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any default on the part of the supplier of goods i.e., the Company in liquidation. The liability is absolute and unconditional. The fact that the Company in liquidation i.e. the principal debtor has gone into liquidation also would not have any effect on the liability of the Bank i.e. the guarantor. Under Section 128 of the Indian Contract Act, the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Indian Contract Act by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor, but a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability. Jagannath Ganeshram Agarwala v. Shivnarayan Bhagirath AIR 1940 Bom 247. See also in re Fitzgeorge Ex parte Robson (1906) 1 KB 462. In view of the unequivocal language of the letter of guarantee, no reliance can be placed by the Company in liquidation on the decision of this Court in Punjab National Bank Limited v. Sri Bikram Cotton Mills : [1970]2SCR462 in which the surety's liability was limited to the 'ultimate balance' found due from the principal debtor and the said balance had not been ascertained before the institution of the suit. The facts of this case are distinguishable from the facts in the case before us. As mentioned earlier the liability of the Bank to pay the amount as per the letter of guarantee did not depend upon prior proof of any default on the part of the Company in liquidation. Whether the whole of Rs. 50,000 should be demanded or any lesser sum should be demanded from the Bank was entirely within the choice of the Electricity Board. The Bank has, therefore, to pay the amount due under the letter of guarantee given by it to the Electricity Board. On such payment it is open to the Bank to have recourse to the securities given by the Company in liquidation for the purpose of the issue of the letter of guarantee. The Electricity Board is not concerned with what the Bank does in order to reimburse itself after making payment of the amount guaranteed by it, it is the responsibility of the Bank to deal with the securities held by it in accordance with law. It was not, however, open to the Company Judge to make any order under the Companies Act prohibiting the Electricity Board from realising the amount guaranteed by the Bank as this had nothing to do with the assets of the Company in liquidation. The order of the Company Judge and the judgment of the Division Bench in appeal are, therefore, liable to be set aside and they are accordingly set aside.
12. Reliance also was placed on B.L. Nanjappa v. The Sangli Bank Limited 2007 (3) Current Civil Cases 386 (Karnataka) and United Bank of India v. Modern Stores (India) Limited : AIR1988Cal18 .
13. When the parties had chosen to contest the suit and invited certain findings if the parties aggrieved of such findings or the decree made, the remedy available to such parties, may be to challenge such findings by way of an appeal or by any other remedy available to such parties in law. This is not a case of inherent lack of jurisdiction or the decree being a nullity so as to raise objections under Section 47 read with Section 151 of the Code. Here is a case where findings had been invited and after recording certain specific findings relating to the liability of these parties, the suit had been dismissed as against D.1 to D.3 on the ground that they being the legal representatives of the deceased principal borrower and in view of the fact that no assets of the deceased are in the hands of those parties, the suit to be dismissed. In such a case, such objections cannot be permitted to be raised again at the stage of execution. Hence, viewed from any angle, the Civil Revision Petition is devoid of merit and accordingly, the same shall stand dismissed. However, in the peculiar facts and circumstances of the case, this Court makes no order as to costs.